Financial Folklore

Arising spontaneously from the people, folktales are little windows into the collective human psyche. Most people think of them as stories concerning the long ago and the faraway. In fact, all times and places have produced them, and modern times are no exception. Instead of dealing with dragons, wolves, and other menaces to the medieval world order, however, present-day folktales often revolve around modern technology and the attempts of human beings to come to terms with it.

Alligators, in the public imagination, have roamed the New York City sewers for several generations now. An already classic folktale of the 1980s is the story of the little old lady, the miniature poodle, and the microwave oven. In case you didn’t hear it, it involves the woman’s well-meaning (if extremely naive) attempt to dry her pet using the latest kitchen gadget. Much to my relief, I recently learned this is indeed a folktale, a cautionary myth with no basis, so far as can be determined, in fact.

Technological folktales are not, however, a twentieth-century invention. In all likelihood they date back at least to the coming of the railroad, among the first modern technologies to directly affect the public. Not long ago I uncovered a mid-nineteenth-century tale regarding Wall Street and the then-new Atlantic cable. (It is not, in the strict sense, a folktale at all, since it involves a real person, but it is close enough, and the person was, to put it mildly, larger than life.)

James Fisk, Jr., was one of the most extraordinary people ever to play the great game of Wall Street. One of his fellow Wall Streeters described him as a man “who in 1865 came bounding into the Wall Street circus like a star acrobat, fresh, exuberant, glittering with spangles, and turning double summersets apparently as much for his own amusement as for that of a large circle of spectators. He is first, last, and always a man of theatrical effects, of grand transformations and blue fire. All the world is to him literally a stage and he is the best fellow who can shift the scenes the fastest, dance the longest, jump the highest, and rake in the biggest pile.”

Fisk raked in some impressive piles. He and his partner Jay Gould snatched control of the Erie Railway from under the nose of Commodore Vanderbilt in 1868. The following year they precipitated the greatest Wall Street panic of the century with their attempt to corner gold. Even Fisk’s death was of a piece with his life. He was murdered in 1872, at the age of thirty-seven, in front of dozens of witnesses by his former mistress’s current lover.

His obituaries, of course, gave every detail of his life, and one included a marvelous tale of the Civil War and Wall Street speculation that was just what one might expect of Jubilee Jim Fisk. It runs as follows.

In the winter of 1864-65 Fisk thought that the Confederate capital of Richmond must soon fall, and the Confederacy with it. With no cable in operation there was a ten-day time gap between New York and London, and Fisk reasoned that if he could operate in the London market after he had learned of the capture of Richmond but before that news became known in London, he could make a killing.

So Fisk hired a fast steamer and stationed her in Halifax, the nearest major port in North America to England. He strung fifty miles of private telegraph wire to assure instant communication with her. The ship’s captain had orders to keep steam up in her boilers, and his agents were on board. When Richmond finally fell, on April 3, 1865, Fisk sent a one-word message to Halifax: “ GO !”

The ship raced across the Atlantic to Liverpool, and Fisk’s agents hightailed it to London on the fast train. There they sold massive amounts of Confederate bonds for future delivery, knowing the price would plummet. When the official news finally did reach the London Stock Exchange, three days after Fisk’s agents, Confederate bonds plunged from eighty to twenty-eight in a few minutes and then tailed off into worthlessness a few days later. Fisk had made a fortune.

Or had he? When I first encountered the obituary relating this well-known story, I was writing a book about Wall Street in the 186Os and was delighted to have a nearly contemporary source to confirm it. Most legends, after all, take much longer than seven years to get into print. But something bothered me from the beginning, and the more I thought about it, the less I liked it.

First, Fisk arrived in Wall Street only in early 1865, and the first thing he did there was to lose every penny of the modest fortune he had made as a partner of the Boston textile firm of Jordan, Marsh. So he could not possibly have financed the scheme on his own, and any partners he had would not have put a neophyte like Fisk in charge of their money in such a gamble. In other words, it seemed that Fisk could have undertaken this scheme only after he had made his reputation as a Wall Street plunger of genius. And that reputation was earned only in 1868 and 1869.

Second, some very large and non-refundable investments, in telegraph wires, ship, crew, et cetera, would have been needed to carry this off. From the moment Fisk committed himself to these expenses until the moment his agents arrived in London, he would have been dependent on the London market for Confederate bond’s remaining steady, and his news of that market would never have been less than ten days old.

Now for a speculator, ten days are an eternity. Being ten minutes behind the news can cost millions. It seemed to me that this scheme was impossibly risky even for someone like Fisk. Fisk, after all, was a gambler not a fool.

Third, I was surprised that Confederate bonds were selling at eighty cents on the dollar in London so late in the war. Everybody knew that if the rebellion was suppressed, the bonds would be worthless, and in the early days of 1865 one did not have to be Ulysses S. Grant to know that the Confederacy was doomed. The English business community, to be sure, had been strongly pro-Confederacy, but they not fools, any more than Fisk was.

So I checked the London Times of 1865, and sure enough, Confederate bonds were not at eighty, and they hadn’t been in years. They were already trading at twenty-eight when news of Richmond’s fall came. There was no sign of Fisk’s supposedly massive short sales. Nor were there any reports in the Times later of Fisk’s scheme, as there should have been. Nor did Fisk himself ever refer to this incident, as he certainly would have, for Jim Fisk was not one to hide his light under a bushel.

There was no alternative to accepting the fact that it was all a tall tale, and much to my disappointment, I couldn’t use it in the book. (I had to save it and use it in a column.)

But how did such a basically implausible story come into being in the first place? I suspect it came about like any folktale: as an expression of a fundamental aspect of the human condition.

Investors, like everyone else, are condemned to live their lives on the fnife-edge between the future that can never be foreseen and the past that can never be revisited. But if they could revisit the past, what fortunes could be made! Selling short in early October 1929; loading up on Xerox in 1958; buying oil futures on the thinnest of margins the day before Iraq invaded Kuwait. With financial coups like those, making it to the Forbes Four Hundred list would be a morning’s work, with time left over for a couple of sets of tennis.

It seemed to me that this supposed scheme was impossibly risky even for someone like Jubilee Jim. Fisk, after all, was a gambler, not a fool.

Today it is all a pipe dream. But before the transmission of information became instantaneous with the invention of the telegraph, it was sometimes actually possible, in effect, to revisit the past. A man learning of important news could ride a fast horse—or sail a swift ship—into the past, or at least into the parts of the world still in ignorance, and turn this knowledge into wealth. Nathan Rothschild, learning via carrier pigeon of the outcome of the Battle of Waterloo, made a bundle on the London Stock Exchange with his monopoly of the information.

Early in the nineteenth century, one of New York’s advantages over Philadelphia was the fact that it was two sailing days closer to London. Chestnut Street brokers learned to dread the sudden arrival of a stagecoach full of Wall Streeters, for it invariably meant that important news from London had reached the New Yorkers, who were intent on making a killing while still in exclusive possession of it.

The domestic telegraph brought an end to such shenanigans in this country, and when the first successful Atlantic cable went into operation in 1866, the ten-day time gap between London and New York vanished as well. This had an immediate impact. Before the cable, the London and New York markets necessarily operated independently of each other because prices in one could not reflect current prices in the other.

Once the cable proved reliable, however, the two markets inevitably began to merge. A high price in New York for, say, gold, and a low one in London could now be arbitraged out of existence via the cable in short order. By 1870 Wall Streeters were spending a million dollars a year on cable charges to do exactly that. Fisk’s apocryphal scheme had become utterly impossible.

But Wall Streeters, like Mondaymorning quarterbacks and armchair admirals, are fond of playing the game of “if only.” One can almost see a couple of top-hatted brokers having an after-work drink or two at a bar circa 1870, reminiscing about the good old days of the Civil War and how much money they could have made if only …

As they dreamed up the scheme over their third whiskeys, perhaps they realized it would have needed a man of genius and infinite financial courage to carry it out. “Jim Fisk could have done it” soon became “Jim Fisk did it.” The story spread, a folktale was born.